What I’m Watching This Week – 17 December 2018

A market correction refers to a decline in a stock or index of at least 10% following a temporary high price. After last week’s losses, the Dow, S&P 500, and Nasdaq are entering correction territory. Of the benchmark indexes listed here, only the Nasdaq remains ahead of its 2017 closing price. The Russell 2000, which had pushed year-to-date gains of over 10%, now wallows more than 8.0% below last year’s ending value. It appears last week’s sell-off was fueled by increased investor fears of a global economic slowdown resulting from unfavorable reports on Chinese and eurozone economic indicators.

Oil prices closed down last week following two consecutive weeks of increasing prices. Oil prices closed at about $51.16 per barrel by late Friday, down from the prior week’s closing price of $52.21 per barrel. The price of gold (COMEX) also fell off after several weeks of gains, dropping to $1,242.20 by last Friday evening, down from the prior week’s price of $1,253.70. The national average retail regular gasoline price was $2.421 per gallon on December 10, 2018, $0.030 lower than the prior week’s price and $0.064 lower than a year ago.

Market/Index

2017 Close

Prior Week

As of 12/14

Weekly Change

YTD Change

DJIA

24719.22

24388.95

24100.51

-1.18%

-2.50%

Nasdaq

6903.39

6969.25

6910.66

-0.84%

0.11%

S&P 500

2673.61

2633.08

2599.95

-1.26%

-2.76%

Russell 2000

1535.51

1448.09

1410.81

-2.57%

-8.12%

Global Dow

3085.41

2835.95

2813.48

-0.79%

-8.81%

Fed. Funds target rate

1.25%-1.50%

2.00%-2.25%

2.00%-2.25%

0 bps

75 bps

10-year Treasuries

2.41%

2.85%

2.89%

4 bps

48 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

The federal government deficit expanded by over $100 billion in November over the prior month. Year-to-date, the deficit sits at $305.4 billion ($201.8 billion last year). In November, the government spent $411 billion, with most of the expenditures going to Social Security ($84 billion), Medicare ($77 billion), and national defense ($62 billion). Receipts last month totaled $206 billion, consisting mostly of individual income taxes ($93 billion) and social insurance and retirement ($93 billion).

Inflation was rather benign in November for consumers. The Consumer Price Index was unchanged in November after rising 0.3% in October. Over the 12 months ended in November, the CPI has increased 2.2%. Energy prices fell 2.2%, pulled down by a 4.2% drop in gasoline prices. The CPI less food and energy inched up 0.2% in November and is up 2.2% over the last 12 months.

Inflationary pressures at the producer level receded in November. The Producer Price Index edged up 0.1% in November following increases of 0.6% in October and 0.2% in September. Of note, a 0.3% jump in producer services drove the modest November price increase. Producer prices for goods actually decreased 0.4% for the month. Another sign that inflation is easing is evident in the 12-month rate, which was 3.4% in July and now sits at 2.5% for the 12 months ended in November. The index less foods, energy, and trade services moved up 0.3% in November, the third consecutive increase. For the 12 months ended in November, prices less foods, energy, and trade services advanced 2.8%.

Retail sales increased 0.2% in November from October, and are up 4.2% over November 2017. Notable sales increases occurred in furniture and home furnishing stores, electronics and appliance stores, and web-based retailers. Gasoline stations saw sales drop by 2.3% in November due to falling gas prices.

Import prices fell 1.6% in November following a 0.5% rise the previous month. The November decrease is the largest monthly decline since a 1.8% drop in August 2015. An 11.0% decrease in fuel prices contributed to the drop-off in import prices. Over the 12 months ended in November, import prices are up 0.7% — the smallest such increase since the index increased 0.2% from November 2015 to November 2016. Export prices fell 0.9% in November after advancing 0.5% in October — the largest one-month drop since January 2016. While agricultural export prices rose 1.8% for the month, nonagricultural export prices, particularly industrial supplies and materials, fell 1.0%. Over the past 12 months, export prices have increased 1.8%.

According to the Federal Reserve, industrial production rose 0.6% in November after moving down 0.2% in October; the index for October was previously reported to have edged up 0.1%. In November, manufacturing production was unchanged, the output of mining increased 1.7%, and the index for utilities gained 3.3%. Total industrial production was 3.9% higher in November than it was a year earlier.

According to the Job Openings and Labor Turnover report for October, the number of job openings ticked up by about 119,000, hires edged up by 196,000, and total separations fell by 85,000. Job openings increased in information (45,000), real estate and rental and leasing (38,000), educational services (20,000), and state and local government education (17,000). The number of job openings decreased in state and local government, excluding education (38,000) and transportation, warehousing, and utilities (33,000).

For the week ended December 8, the advance figure for seasonally adjusted initial claims for unemployment insurance was 206,000, a decrease of 27,000 from the previous week’s level, which was revised up by 2,000. According to the Department of Labor, the advance rate for insured unemployment claims inched up 0.1 percentage point to 1.2% for the week ended December 1. The advance number of those receiving unemployment insurance benefits during the week ended December 1 was 1,661,000, an increase of 25,000 from the prior week’s level, which was revised up by 5,000.

Eye on the Week Ahead

While the latest report on the gross domestic product is out this week, most eyes will be focused on the announcement from the Federal Open Market Committee’s December meeting. While many expect a quarter-of-a-point rate hike, recent market volatility may sway some committee members to hold off on pushing interest rates higher.